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The economy has been a roller coaster for consumers over the last 2.5 years, and the ride isn’t slowing down yet. As COVID-19 and its ripple effects have continued to shape the economy, U.S. households have navigated both prosperity and struggles.
In the early weeks and months of the COVID-19 pandemic, experts feared that widespread shutdowns would devastate households economically. While March and April 2020 did bring brief spikes in unemployment, the economy overall fared better than expected early in the pandemic. Expansive government relief programs gave a boost to household finances, and because people spent less during lockdowns, the personal savings rate — calculated as the percentage of disposable income that people save — increased to record heights. Over the course of 2020 and 2021, low interest rates for borrowing and rising wages in a tight labor market continued to make it easier to save, keeping the rate elevated.
The rise and persistence of inflation more recently has reversed that trend. Year-over-year increases in the Consumer Price Index have exceeded 5% in every month since May 2021 and topped 8% in each of the last 6 months. With everything from housing to energy to groceries becoming more expensive, money that consumers had previously been setting aside is increasingly going toward essential spending.
These economic headwinds have sent the household personal savings rate back down to pre-COVID-19 levels. The savings rate peaked at 33.8% early in the pandemic but had fallen to just 5% as of July 2022 — less than half the rate of the previous July and the lowest level since the Great Recession. Today’s figures are more in line with recent history: despite steadily rising real disposable income over time — where disposable income is defined as total personal income less any personal taxes paid — personal savings rates have fallen from 10% to 15% in the mid-1970s to between around 4% and 8% in more recent decades.
Low savings rates can have a positive effect on economic activity because they signal that consumers are spending on goods and services. But in today’s environment, with high prices and rising interest rates, low savings could expose more households to financial difficulties. If the U.S. economy enters a recession and unemployment rates increase, households with depleted savings may struggle with essential spending.
Having more disposable income is important for positioning families to pay for necessary expenses and weather hardships when they arise. On this count, residents in certain parts of the country will be better off than others. Looking at the cost of living alone is not enough, as less expensive places to live — such as Mississippi, West Virginia, and Arkansas — are all ranked near the bottom for disposable income. Without taking cost of living into account, states in the South tend to have the lowest per capita incomes on both a pre- and post-tax basis. In contrast, most of the states where disposable incomes are highest are coastal locations, which tend to have higher concentrations of well-educated workers and well-paying industries. But these states also often have higher cost of living.
It’s important to factor in all relevant factors to find the states whose’ residents have the most money to spend or save. To determine the states whose residents have the most cash to spend, researchers at Upgraded Points calculated the per capita disposable income by state in 2021 and adjusted for cost-of-living differences. In doing so, we see that Connecticut leads the way, followed by the Dakotas, Wyoming, and Massachusetts. On the other hand, residents of Mississippi, Hawaii, and Arizona average the least disposable income.
U.S. States With the Most Disposable Income
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15. Minnesota
- Per capita post-tax income (adjusted): $57,586
- Per capita post-tax income: $56,794
- Per capita pre-tax income: $65,486
- Per capita taxes paid: $8,692
- Cost of living (compared to average): -1.4%
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14. New Jersey
- Per capita post-tax income (adjusted): $57,805
- Per capita post-tax income: $64,258
- Per capita pre-tax income: $74,805
- Per capita taxes paid: $10,547
- Cost of living (compared to average): +11.2%
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13. Pennsylvania
- Per capita post-tax income (adjusted): $58,131
- Per capita post-tax income: $56,715
- Per capita pre-tax income: $64,054
- Per capita taxes paid: $7,339
- Cost of living (compared to average): -2.4%
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12. Illinois
- Per capita post-tax income (adjusted): $58,161
- Per capita post-tax income: $58,438
- Per capita pre-tax income: $67,095
- Per capita taxes paid: $8,657
- Cost of living (compared to average): +0.5%
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11. Colorado
- Per capita post-tax income (adjusted): $58,663
- Per capita post-tax income: $60,344
- Per capita pre-tax income: $69,016
- Per capita taxes paid: $8,672
- Cost of living (compared to average): +2.9%
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10. California
- Per capita post-tax income (adjusted): $58,882
- Per capita post-tax income: $64,994
- Per capita pre-tax income: $76,386
- Per capita taxes paid: $11,392
- Cost of living (compared to average): +10.4%
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9. Washington
- Per capita post-tax income (adjusted): $59,617
- Per capita post-tax income: $64,004
- Per capita pre-tax income: $71,889
- Per capita taxes paid: $7,885
- Cost of living (compared to average): +7.4%
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8. Nebraska
- Per capita post-tax income (adjusted): $60,170
- Per capita post-tax income: $55,892
- Per capita pre-tax income: $62,095
- Per capita taxes paid: $6,203
- Cost of living (compared to average): -7.1%
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7. Alaska
- Per capita post-tax income (adjusted): $60,214
- Per capita post-tax income: $62,164
- Per capita pre-tax income: $67,138
- Per capita taxes paid: $4,974
- Cost of living (compared to average): +3.2%
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6. New Hampshire
- Per capita post-tax income (adjusted): $61,930
- Per capita post-tax income: $64,229
- Per capita pre-tax income: $72,003
- Per capita taxes paid: $7,774
- Cost of living (compared to average): +3.7%
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5. Massachusetts
- Per capita post-tax income (adjusted): $64,348
- Per capita post-tax income: $69,137
- Per capita pre-tax income: $82,475
- Per capita taxes paid: $13,338
- Cost of living (compared to average): +7.4%
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4. Wyoming
- Per capita post-tax income (adjusted): $64,422
- Per capita post-tax income: $59,434
- Per capita pre-tax income: $65,627
- Per capita taxes paid: $6,193
- Cost of living (compared to average): -7.7%
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3. North Dakota
- Per capita post-tax income (adjusted): $65,244
- Per capita post-tax income: $60,051
- Per capita pre-tax income: $65,544
- Per capita taxes paid: $5,493
- Cost of living (compared to average): -8.0%
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2. South Dakota
- Per capita post-tax income (adjusted): $65,334
- Per capita post-tax income: $59,792
- Per capita pre-tax income: $64,720
- Per capita taxes paid: $4,928
- Cost of living (compared to average): -8.5%
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1. Connecticut
- Per capita post-tax income (adjusted): $66,740
- Per capita post-tax income: $69,035
- Per capita pre-tax income: $82,082
- Per capita taxes paid: $13,047
- Cost of living (compared to average): +3.4%
Final Thoughts & Detailed Findings
The data used in this analysis is from the U.S. Bureau of Economic Analysis’ Personal Income and Regional Price Parities datasets. To determine the states whose residents have the most cash to spend, researchers at Upgraded Points calculated the per capita disposable income by state in 2021 and adjusted for cost-of-living differences. For the purpose of this analysis, disposable income is defined as total personal income less any personal taxes paid.
Households in the U.S. have experienced both financial highs and lows throughout the COVID-19 pandemic. Although the personal savings rate reached record heights in 2020 and 2021, savings are now declining due to inflation.
As disposable income decreases and savings rates decline, families may struggle to pay for essentials or unexpected expenses. Residents in certain parts of the U.S. will likely fare better than others, however.
Despite lower costs of living, states like Mississippi, West Virginia, and Arkansas all rank near the bottom for disposable income. How much residents pay in taxes is not enough to determine their disposable income, either, since states like California and Massachusetts still rank highly.
When considering all relevant factors — beyond cost-of-living differences or taxes alone — residents of Connecticut have the most money to spend or save, followed by residents of the Dakotas, Wyoming, and Massachusetts. Residents of Mississippi, Hawaii, and Arizona, meanwhile, average the least disposable income.
